To not understand how remortgaging works

[Stopcollaborateandlisten77]

Pretty thick, I know. How does remortgaging your house actually work? We’ve been in the same house for 10 years, paying the mortgage in that time. We’d like to do some bits on the house and get a new car. Do they check your credit rating like they would if you were getting a credit card etc, or is I just a given, being that it’s in the house?
How much can you have and..well, basically how does it all work? Can the bank refuse it?

I think Martin Lewis has a pretty good guide

www.moneysavingexpert.com/remortgaging/

They can refuse to lend you more money, yes. They can look at changing your product so you pay less per month for instance if the interest rate is better now than what you’re currently on. But you might not be eligible to borrow more as they look at ‘affordability’ which is why I can’t get a new mortgage or borrow more even though my house has doubled in value, I’ve never missed a payment...

I would liken it to getting a first mortgage rather than a credit card. A credit card is unsecured debt, a mortgage is secured on the house so it is a different type of lending.

Yes of course they can turn it down, as with any lending decision. How much will be lent will depend on the equity in the house and ability to pay.

If you want to borrow more it's called a 2nf charge mortgage - it's a separate loan to the other part of the mortgage on it's in terms. You'll need to qualify to borrow the amount - if you have been there for 10 years you will have a good amount of equity. So the bank will use the value of the house now and lend you an overall percentage of it.

Eg - purchase price 10 years ago - 100k deposit 10 k current value - 150 k leaves 60 k in equity plus whatever repayments you've made.

Unless your income has dramatically reduced from what it was 10 years ago you should be able to borrow more with no problems :)

Remortgaging your house basically means you move it to another lender.

If you want to stay with your lender and borrow more money, this it known as additional borrowing - usually the original mortgage stays the same and the additional borrowing is seen as a sort of 'second mortgage'.

You can remortgage to another lender and additional borrow at the same time.

Yes you will need to pass a credit check and income verification is required usually. The bank can refuse for a number of reasons any additional borrowing yes. Hope that helps x

if you have been there for 10 years you will have a good amount of equity

@Warsawa31 unfortunately that's not always the case. In the area I live, the value of some houses has almost halved since 2008 😕. Even people who bought with a 10% deposit may still be in negative equity.

Thanks all, so would you still be paying back a monthly amount, as you do with a normal loan/credit card? What about when you go to sell the house?
What’s better to remortgage or get a sizeable loan?

We had an extra £20k a couple of years ago for a new drive and new windows. It was an extra mortgage rather than a remortgage (as in the original mortgage was unaffected), but with same lender. It is the same bank we have current accounts with so there were no additional checks as they have access to our regular earnings. There was no need to revalue the house as the value was indexed and is well under 50% LTV.

It’s not recommend to remortgage for a car though, unless you only have a very short term outstanding, as in theory you’ll end up paying more as the term is much longer than a car loan would be. Ie if you borrow £10k on a rate of 1.5% over 15 years clearly it costs a lot more in total than borrowing £10k on a rate of 4% over 3 years. In the meantime you’ll have sold the car but still be paying for it.

It's definitely not the best route to go down for things like a car or some house remodelling. You'd be better off looking into different buying options for a car (hire purchase might work for you) and remodel with a loan if you're doing something big like an extension/expensive kitchen etc, or pay out of pocket.

@MsVestibule

if you have been there for 10 years you will have a good amount of equity

@Warsawa31 unfortunately that's not always the case. In the area I live, the value of some houses has almost halved since 2008 😕. Even people who bought with a 10% deposit may still be in negative equity.

Yikes. Where in the UK is that?

Just think of it as taking out a new mortgage to repay the existing one.
So the process will be the same as when you took it out the first time, but you could change:

• the amount - borrow more money (usually only done if spending to increase the value of your house)
• the term (amount of years to pay the mortgage off over). So you could lengthen this if you want to borrow more, as long as you are young enough.

Out of interest, why have you not changed your mortgage before 10 years? Is it a variable rate? Or did you have a 10 year fixed rate? I hope you didn’t revert back onto a (high) standard rate at the end of a fixed rate term 😬

We took out an additional mortgage to have an extension with current mortgage provider. It's a second loan. Had an hours phone call with them for approval

@Doomsdayiscoming I don't want to be too specific so I'll just say a deprived part of north east England. Old 2 bedroom mining terraces (Coronation Street style houses but a lot smaller) increased from about £40k in 2003 to £80k in 2008. Then the financial crash happened and they went down to about £40k.

As they were so cheap, landlords bought loads, wrong uns were moved in and now nobody in their right mind would buy there to live unless they were desperate.

I live only a couple of miles from there but it's like a different world (although still not particularly fancy!).

BTW, there are pockets all over the NE where this has happened, not just my town. Overall, the prices in the NE have gone up, but that's mainly in the more affluent areas or city centres. It's a tragedy for people who just wanted some security and now they're stuck in an area they don't want to live in but can't afford to live out of because they have zero equity.

Interested as well op, why isn't it good for doing house remodel?

Basically you’d be taking out what you’ve put in, so you own less in equity and have a bigger debt

I’d never do that to buy a new car

As a new car is a depreciating asset

But ops new kitchen is increasing property value

@MsVestibule

if you have been there for 10 years you will have a good amount of equity

@Warsawa31 unfortunately that's not always the case. In the area I live, the value of some houses has almost halved since 2008 😕. Even people who bought with a 10% deposit may still be in negative equity.

Wow, where abouts in the UK is that? We've only been in our current house 4 years, and gone up by £65k+.

@Whammyyammy I've given the details a few posts up.

Not sure about new kitchens always increasing property value

If you are planning to sell the house in a few years, yes, maybe (though it’s very common for people to be very particular and want to choose their own)

But in 10/15/20 yrs? It’ll just be a very dated kitchen

The value-add of a new kitchen means nothing to your own finances unless you then sell the house in a few years (to someone who has the same taste in kitchens as you)

Remortgaging vs loan is very dependent on your finances. If you don't have much spare each month, remortgaging is the way to go. You'll be paying back a small amount extra alongside or as part of your mortgage for a long time. That means paying a lot of interest but with smaller monthly repayments that you can manage. A loan would be over a much shorter period of time so less interest, but you're tied to pretty significant repayments each month.

I would also say that the interest may not even be too much of an issue right now, as interest rates are v low for remortgaging right now, so a lower interest rate over a longer period of time could feasibly work out the same as a higher rate over a shorter period. Obviously that would depend on figures involved, interest rates, term of mortgage...you'd need to crunch the numbers to be sure of that.